5 realistic ways to make the most of your money during a renovation

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Want to renovate but not sure of the cost? Here’s how to work out what you can afford and whether it’s worth your while doing it

1. Start how you plan to finish

Work out what you want from your home and write down what you’d need to make this a reality. If your goal is to rent it out or sell it on, you will have a very different set of aims and outcomes to work from.

Start with the stuff that’s not so much fun but will improve the health and longevity of your home, eg insulation, new gutters or roof, relining walls, upgrading plumbing/wiring or installing a whole-house heating system. Then think about big-ticket items such as a new kitchen, bathroom or outdoor living area. Finally look at lower-cost improvements such as setting up a study or exercise area or buying a plush new lounge suite.

You may wish to aim for a balance between high- and low-cost projects – a brand-new kitchen combined with a quick bathroom makeover; or a state-of-the-art heating system combined with a fresh interior paint job. Once you’ve written your ultimate wish list, look at the overall scale of the work and ask yourself: would it be easier to simply move house?

2. Break it down

If you decide that you definitely want to go ahead and renovate, itemise every improvement you’d need to make to fulfil your vision. Prioritise the list with a focus on improvements that will make your home healthier and more appealing to potential buyers, even if you plan to stay for the foreseeable future.

Talk to friends and family about their renovations and find out what upgrades have made the biggest difference to them. Try to remove the emotion from your decision-making and be practical about this list, rather than fixating on the gorgeous new marble benchtop you’ve always dreamed of.

Malcolm Knight, a registered financial adviser at Threefold, says simple changes can often make a big impact, so if you’re going to spend up large it’s important to be sure the cost is worth it. “Cheap cosmetic improvements such as a fresh coat of paint can have a drastic impact on sales value on a tired or rundown property. Kitchens and bathrooms are the typical selling points in a home and can really drive price, but they can be expensive if you are making major changes such as moving plumbing.”

3. Work out your budget

Work out how much money you can access by tallying up any savings and talking to your bank about your borrowing potential. Make sure you understand the impact any loans will have on your lifestyle in both the short and long term.

Malcolm recommends speaking with a mortgage broker or trusted adviser at this point. “They will be able to quickly run the numbers for you and give an indication of the best finance options available to you. They can also get finance pre-approved for you (if required) before you start your project.”

Next, research what sum would be wise to spend on your home. Talk to a valuer or real-estate agent about the price similar homes in your area are selling for (and what your house would be likely to sell for post-renovation). Bear in mind what your house is for – if it’s your forever home, investing in its health and comfort is worthwhile. But if you’re likely to sell it, spending big on top-shelf improvements may not make financial sense.

Malcolm says getting this step right comes down to the value of your property and the neighbourhood it’s in. “If you’re starting from a ‘worst house in the best street’ position, your budget can be grand, but if you’re already in the best house in the worst street, you need to be cautious not to overcapitalise.

Calculate what you paid for your house, what it would be likely to sell for in the current market, and what it would sell for if you made the improvements. If you end up in the red at this step, that’s not necessarily a deal-breaker – you just need to weigh up the financial risk against the intangible benefits your renovation will create (the joy of using a dream benchtop cannot be quantified!).

4. Talk to experts

Get quotes from a builder, architect and/or project manager about the cost per square metre of building in your area. Then, depending on the scale of the work you want to have done, talk to a builder or architect to come up with an estimate, including a contingency fund (15-20 percent of the overall cost is standard), for your renovation. Then get a second and
third opinion.

Malcolm recommends spending time on this phase to ensure you understand your budget and keep costs under control. “Getting more than one quote can save you thousands,” he says. “With tradespeople currently very busy and not needing to compete for work, we are seeing some real profiteering, particularly on relatively minor jobs.”

Once you have a good idea of what your renovation is likely to cost, you can tally this figure against your home’s value and calculate if it would amount to an overcapitalisation you’re not comfortable with – bearing in mind that monetary value doesn’t reflect the improved health and happiness your renovation might bring.

5. Revise and finalise

Revisit your reno plan and make any required adjustments – most people underestimate the expense of home renovation so you may well have to prune down your plan or even slash it back to the essentials. You may also wish to plan your renovation in stages to spread the cost over a longer period.

Malcolm says the biggest mistake people make when renovating is underestimating the costs and failing to plan. “Costs can quickly escalate through the process if you’re making variations as you go,” he says. “More time spent upfront in the planning phase not only helps you understand your budget, but also makes it more likely that you’ll love your end product.”

Coming up with a good renovation plan is all about balance – balancing high-cost improvements with low, balancing the current value of your home against its worth in the future, and balancing your wants with your needs. Take time to find the best balance for you and your family.